How do you “live off your investments?”

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The idea is that you have so much that you can take out what you need and that’s still less than it grows or generates. The long here rule was 4%. So a million dollars would allow you to pull out 40k a year without declining.


When I first retired, I pulled money from my taxable stock account because the capital gains rate for me was 0%. When my RMD’s kicked in I started using those to live off of. My portfolio produces about $25,000 in dividends per year. In addition, I also do some trading. I only need $20,000 a year to supplement my Social Security checks so my portfolio continues to grow despite taking money out every year for the past 9 years. When I retired in 2012 I had $57,000 in cash and $467,000 in stocks and mutual funds. Today I have $110,000 in cash and well over $800,000 in stocks and mutual funds. These days, my taxable stock account is growing from my RMD’s being deposited there every January. Your retirement accounts don’t stop on the day you retire. They keep generating gains and losses, dividends, splits, buy backs etc. every day. 4% is a really low bar for well invested retirement funds to produce each year.


A 4% withdrawal rate is considered safe. With this withdrawal rate it is very likely that the returns on your investments will make up for your withdrawals, so that you never run out of money. And basically, you take the 4% out by accepting the dividends and not reinvesting them, and by selling some of your shares. If you have $ 1 million of investments, you know that your total withdrawals (dividends + stock sales) should be $40k. The value of the remaining shares is supposed to be go up more than the value of the shares that you sold. How to do it best with a tax strategy is yet another thing. This depends on what types of accounts you have, how much income you want to get out of the investments in a year, and what your age is.


The very abbreviated answer: historically the market has made 10% average with some years up a lot (like 30%+) and some years down a lot (like -40%). Mathematically if you had X dollars in the market you can live off 4% of that (if normal retirement age) or 3.25-ish% if you are a very early retiree. This makes a very high bar to set to make this work. Got $2M and you are 35yo? You can live on $64k/yr. so you can see why very few people can do this For more reading in detail: r/financialindependence


The answer is to have so much money that dividends and interest generate enough to live on. It’s great advice for about 5 percent of people.